Q1. Is 2024 anticipated to be a year characterized by rate cuts, and how do you perceive the pace at which rates will decline in the US?

Yes, 2024 is the year that will be characterized by interest rate cuts in most economies, albeit in the second half of the year. Inflation is finally under control and below most central banks targets. Slowing growth and inflation below the defined targets will give most central banks comfort to lower interest rates.

In the US, growth is slowing, and we expect higher rates and tighter credit conditions to lead to a slowdown in the second half of 2024. Household balance sheets have remained resilient, but unsustainable consumption, slowing labor income and the restrictive stance of monetary policy should slow consumer spending. The Fed has begun to signal potential easing in 2024, and we expect a pre-emptive 25 bps cut in June. However, the Fed is likely to keep policy restrictive until the risk of inflation rebounding has diminished, and the unemployment rate starts to increase materially.

Q2. How do you see sector weights change in the composition of Nifty 500 as we see approach a market capitalization of $6 trillion by the end of this decade?

India recently became the fourth largest country by market cap touching US$4 trillion*. The first trillion came in 2007, post that the next trillion took a decade while the third trillion came in 4 years and the fourth trillion in roughly 2.5 years. Given the growth potential of the economy, robust macro indicators and the inflows from FPIs, the composition of sectors have changed over the decade. This change has been gradual. For instance, financial services still holds a large weightage of roughly 28-29%^, but its share has reduced from 37%^ in 2019. Likewise, automobiles and FMCG have seen fall in weights over the years as did information technology to some extent. Oil & gas have seen a fall in weights while capex /manufacturing related sectors have seen an increase in weights. As we evolve going forward, new age sectors and manufacturing would see a gradual increase in weights.
* Source: BSE, Bloomberg
^ Source: Factset as on 31st January 2024

Q3. What are the top three tailwinds and headwinds facing equity markets going forward?

India’s GDP is expected to grow by 7.3% in FY24 and by 7% in FY25, indicating that the strong economic growth momentum seen in FY23 (7.2% growth) is sustaining.
Inflation in both developed and developing economies is progressively moderating, raising the possibility of interest rate cuts in the near term which will aid business growth.
India’s economic growth is not concentrated in a few industries and multiple industries are witnessing robust growth concurrently.

Geopolitical tensions arising from the Russia-Ukraine and Israel-Palestine conflicts are a growing concern with the spectre of these conflicts widening looming large.
General election in India this year is a major event and as much as the market is expecting a conducive outcome, elections are inherently uncertain.
Given the market rally, valuations in many pockets of the market have gone up. Therefore, a correction might be in order.

Source: RBI Projections

Q4. Considering the surge in the real estate sector in 2023, do you believe it is now showing signs of being overbought, and what factors contribute to your assessment?

Currently, the affordability levels across cities stand significantly improved than those existing in pre-pandemic 2019.Further, inflation has softened and is expected to remain close to 4.5% for the next year with GDP growth target of 7%. This softening of inflation without deceleration of growth is a clear win for the economy.
Residential Market absorption is at a 10-year high and with only 6 quarters to sell the unsold inventory, it is one of the best performing asset classes. The absorption is depicting an increasing trend, however the important point to note is the components that make up to it which clearly shows a pattern of shift towards premium segment.
Further the Commercial market, which is largely dominated by diverse and global occupiers, has got impacted due to geopolitical uncertainty. However, strong economic fundamentals backed by availability of Grade A building at near dollar rentals, has kept India in the radar of Global Capability Centers (GCCs) and Global Corporations.
Summing up the entire argument, we have just started the upward trajectory of the new cycle in the real estate sector and this cycle we expected to continue for another decade.


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